Goldman Sachs continues to favor equities over the next 12 months, advising clients to capitalize on any near-term pullbacks as buying opportunities. The firm’s Risk Appetite Indicator has surged above 1.2, its highest level since 2021, suggesting a potential for corrections ahead. This rise in risk appetite comes as equities recover from earlier losses related to geopolitical tensions in the Middle East, with major indices approaching all-time highs, driven by robust technology sector earnings and AI-related investments. However, Goldman cautions that elevated bond yields and high energy prices, along with potential escalations in the Strait of Hormuz, pose significant near-term risks. The bank's baseline scenario anticipates a normalization of inflation and a reopening of the Hormuz strait, which could create a more favorable macroeconomic environment. To navigate these uncertainties, Goldman recommends selective hedging strategies, including put spread collars and long-dated call options, to maintain equity exposure while managing potential volatility. Overall, the message is to remain optimistic but cautious, suggesting that traders should be prepared to add to positions during market dips.